Production & Operations: Systems, Planning & Control

TAKEAWAYS:

• Production vs. Operations: Production is making goods/services; operations is managing the process efficiently.
• Process types: Job shop (custom), batch, mass, and continuous—each fits different industries (e.g., Daraz’s batch orders vs. NTC’s continuous electricity supply).
• Inventory models: EOQ balances ordering costs vs. holding costs (e.g., a hardware shop ordering nails).
• Lean principles: Eliminate waste (muda) via 5S, Kaizen, and Just-in-Time (used by Toyota and Himalayan Java).
• Quality tools: PDCA cycle, Six Sigma, and Pareto analysis (e.g., Nabil Bank reducing loan errors).
• Project scheduling: CPM/PERT for critical path analysis (e.g., Pathao’s app development timeline).

1. Definitions & Scope

Production and Operations Management (POM) is the design, execution, and control of processes that transform inputs (raw materials, labor, energy) into goods/services efficiently. It spans:

• Manufacturing (e.g., Toyota’s car assembly).
• Services (e.g., NTC’s electricity distribution).
• Hybrid systems (e.g., Daraz’s warehousing + delivery).

Key difference:

2. Production Systems

Classified by volume, variety, and customization:

mindmap
  root((Production Systems))
    Job Shop
      "Low volume, high variety (e.g., custom furniture)"
    Batch
      "Moderate volume, some customization (e.g., Daraz orders)"
    Mass
      "High volume, standardized (e.g., Ncell SIM cards)"
    Continuous
      "Uninterrupted flow (e.g., NTC’s power grid)"

Worked Example: Daraz’s Order Fulfillment

• System: Batch production (orders grouped by location).
• Process:
  1. Customer places order (variety: books, electronics).
  2. Warehouse picks items in batches (volume: 100–500 orders/day).
  3. Delivery partners (Pathao) handle last-mile logistics.
• Challenge: Balancing lead time (speed) vs. cost (e.g., same-day vs. 3-day delivery).

3. Process Design & Layout

Process types determine layout and efficiency:

Key Metrics:

• Throughput time: Time from start to finish (e.g., a Pathao rider’s delivery time).
• Bottleneck: Slowest step (e.g., Kathmandu traffic at Thapathali during rush hour).

4. Inventory Management

Purpose: Balance holding costs (storage, spoilage) vs. ordering costs (transport, delays).

A. Economic Order Quantity (EOQ)

Formula: $$EOQ=\sqrt{\frac{2DS}{H}}$$

• $D$ = Annual demand (units)
• $S$ = Ordering cost per order
• $H$ = Holding cost per unit/year

Worked Example: Nabil Bank’s ATM Cash Supply

• Demand (D): 50,000 notes/year.
• Ordering cost (S): Rs. 2,000 per delivery.
• Holding cost (H): Rs. 500/year (storage + risk of theft).
• Calculation: $$EOQ=\sqrt{\frac{2\times 50,000\times 2,000}{500}}=\sqrt{400,000}=632\text{ notes per order}$$
• Reorder point: $\text{Safety stock}+(\text{Daily demand}\times \text{Lead time})$.

B. ABC Analysis

Classifies inventory by value (not quantity):

Example: A hardware shop’s inventory:

• A: Nails (high demand, low cost but critical for construction).
• B: Pipes (moderate demand).
• C: Paintbrushes (low demand, low cost).

5. Lean Manufacturing & Waste Reduction

7 Wastes (Muda) in POM:

1. Overproduction: Making more than needed (e.g., unsold Daraz inventory).
2. Waiting: Idle time (e.g., workers waiting for parts).
3. Transport: Unnecessary movement (e.g., NTC trucks driving empty).
4. Overprocessing: Extra steps (e.g., redundant quality checks).
5. Inventory: Excess stock (e.g., Himalayan Java’s unused coffee beans).
6. Motion: Inefficient workflow (e.g., Pathao riders backtracking).
7. Defects: Rework (e.g., Ncell’s faulty SIM cards).

Tools:

• 5S: Sort, Set in order, Shine, Standardize, Sustain (used in Toyota factories).
• Kaizen: Continuous improvement (e.g., Nabil Bank reducing ATM downtime).
• Just-in-Time (JIT): Order materials only as needed (e.g., Daraz’s warehouse restocking).

6. Quality Management in Operations

Total Quality Management (TQM): Everyone in the organization focuses on quality.

Key Tools:

1. PDCA Cycle (Plan-Do-Check-Act):

flowchart TD
  A["Plan: Define quality goals"] --> B["Do: Implement process"]
  B --> C["Check: Measure results"]
  C --> D["Act: Standardize improvements"]
  D -->|"Feedback Loop"| A

PDCA Cycle with Nepalese context: e.g., NTC’s power grid quality checks Example: NTC improving power outage response:

• Plan: Survey affected areas.
• Do: Deploy teams to Thapathali.
• Check: Measure restoration time.
• Act: Train more technicians.

2. Six Sigma: Reduce defects to 3.4 per million (used by banks like Nabil).

   • DMAIC: Define, Measure, Analyze, Improve, Control.

3. Pareto Analysis (80-20 Rule):

   • Example: Nabil Bank’s loan errors:
     • 20% of error types cause 80% of delays → Fix those first.

7. Project Management in Operations

Critical Path Method (CPM) and Program Evaluation Review Technique (PERT) schedule projects by identifying the longest path (critical path).

Worked Example: Pathao’s App Update

• Tasks:
  1. Design UI (5 days).
  2. Backend integration (7 days).
  3. Testing (3 days).
  4. Deployment (1 day).
• Critical Path: Design → Backend → Testing (15 days total).
• Slack: Deployment can start early (not on the critical path).

Gantt Chart Example:

gantt
  title Pathao App Update Timeline
  dateFormat  YYYY-MM-DD
  section Critical Path
  Design UI          :a1, 2023-10-01, 5d
  Backend            :a2, after a1, 7d
  Testing            :a3, after a2, 3d
  section Non-Critical
  Marketing          :b1, 2023-10-03, 4d
  Deployment         :a4, after a3, 1d

8. Operations Strategy & Competitiveness

Trade-offs in operations strategy (choose based on market needs):

Case Study: Toyota’s Lean Operations in Nepal

• How: Implemented JIT and Kaizen in its Kathmandu plant.
• Result:
  • Reduced inventory by 40%.
  • Cut defect rates to <1%.
• Impact: Competitive advantage over local auto workshops.

In the Real World

1. Daraz’s Warehouse Operations

   • Idea: Batch processing + ABC inventory analysis.
   • How: High-value items (A) are stored centrally, while low-value items (C) are in bulk bins. Orders are batched by delivery zone to reduce transport waste.

2. Nabil Bank’s ATM Network

   • Idea: EOQ model for cash replenishment.
   • How: ATMs in busy areas (e.g., Thapathali) reorder cash more frequently (lower EOQ) than rural ATMs, balancing holding costs and customer wait times.

3. NTC’s Power Distribution

   • Idea: Continuous process + Lean principles.
   • How: Hydroelectric plants run 24/7 (continuous flow), while Kaizen teams reduce outage times by optimizing transformer maintenance routes.

Exam Tip

1. Definitions: Know the difference between production and operations, and job shop vs. mass production.
2. Formulas: Memorize EOQ and reorder point calculations—expect numerical problems.
3. Diagrams: Draw process flowcharts, Gantt charts, and Pareto charts in exams (even if not graded, they show understanding).
4. Case Studies: Relate theories to Nepali examples:
   • Lean: Toyota, Himalayan Java.
   • Inventory: Daraz, Nabil Bank.
   • Quality: NTC, Ncell.
5. Critical Path: Always identify the longest duration path in PERT/CPM questions.
6. Trade-offs: Questions may ask why a company (e.g., Pathao) prioritizes speed over cost—link to operations strategy.

Visual Summary: